Hong Kong’s dollar peg feels the heat
The Hong Kong dollar’s peg to the US dollar – and the question of its survival – is once again a hot topic. But this time, the stakes are higher than ever before.
Few currency trades these last 25 years have generated more angst or delivered greater losses for speculators than bets against Hong Kong’s peg to the dollar.
Established in 1983, the link holding the Hong Kong dollar at between 7.75 and 7.85 to the US dollar is the cornerstone of one of the world’s leading financial centres. It anchored the economy during the Asian financial crisis of 1997 to 1998, despite an onslaught of speculative attacks. It withstood the 2008 Lehman Brothers crisis, the 2013 taper tantrum and the US-China trade war.
But this year, questions about the peg’s survival have arisen at the worst possible moment for the Greater China region. Hong Kong is caught in the middle just as China lowers interest rates, the US Federal Reserve raises rates and Covid-19 disruptions slam world markets.
Do Hongkongers really want a monetary policy that serves no good purpose? The problem has become deafening
“You’ve got exactly the wrong monetary policy that Hong Kong needs right now,” Richard Cookson, an adviser to Rubicon Fund Management, where he once managed portfolios, tells Asiamoney. “The costs have become increasingly large and increasingly deflationary.